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Testimony of K. G. Peterson
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re: Hydro Quebec Application
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Docket No. R3398-98
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I am President and Chief Executive Officer of the British Columbia Power Exchange
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Corporation (“Powerex”), a wholly-owned subsidiary of the British Columbia Hydro and Power
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Authority (“B.C.Hydro”). Powerex is a power marketer, actively competing in electricity
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markets in regions outside of BC. Powerex has received power marketing authorization from
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the US Federal Energy Regulatory Commission (“FERC”), and holds export authorizations from
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the National Energy Board (“NEB”) and the Province of BC for exports to the US Powerex also
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holds export permits from the US Department of Energy for exports to Mexico and to Canada
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over all major interconnection points. Powerex has an application pending at the NEB for
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exports to the US over all major interconnection points.
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I am also President of the Western Regional Transmission Association (“WRTA”), the first
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Regional Transmission Group (“RTG”) to receive approval from FERC, and am Chair of the
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Western Interconnection Coordination Forum, an association of reliability councils and RTGs in
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the west of North America. My C.V. is attached as Appendix A.
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Powerex is an active competitor in markets in the west, including Alberta, and has sold energy as
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far east as Wisconsin and as far south as Mexico. Powerex has a 24 hour a day, 7 day a week
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trade operation in Vancouver. For the fiscal year ending March 31, 1998 Powerex’s revenues
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exceeded $330 million (CAD) on sales volumes of approximately 13,000 GWh. Forty percent
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of these sales were supplied from non-B.C.Hydro energy, a figure which is projected to increase
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to 75% for the current fiscal year.
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Powerex conducts real-time (next hour) sales, and daily and monthly block sales at various
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trading hubs including the California-Oregon Border (“COB”), Mid-Columbia and Palo Verde.
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Real-time sales accounted for about 25% of sales volume, daily sales were 20%, and monthly
Testimony of K.G. Peterson
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Powerex
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block sales were 45% of sales. Powerex also makes longer term customized energy
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transactions, and has a number of multi-year contracts, some of which were the result of
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successful bids in requests for proposals. These transactions accounted for 10% of Powerex’s
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sales.
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While the majority of Powerex’s sales are to wholesale customers (utilities and other power
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marketers), Powerex does have some sales to large industrial retail customers in the US.
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Powerex is participating in the retail access pilot programs under way in the US Pacific
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Northwest.
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There are at least two distinct trends in the manner of electricity trading that Powerex has
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observed. The first is clearly a trend to shorter duration transactions. Five years ago, the split
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between the categories of sales noted above was reversed, with over half of all sales under long
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term contracts and only a fraction of total sales made under real-time.
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The second trend is towards greater use of contract pricing linked to markets. This occurs in two
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ways. The first is a direct link between the contract price and a market index; for example COB
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plus x $/MWh. The second is a fixed contract price but to have a contract re-opener if the
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contract price gets too far above or below the market price over time. Either way, the contract
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price is influenced by changing market conditions.
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B.C.Hydro has, as does Hydro Quebec, a predominantly hydroelectric generation system, with
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substantial storage capability. Over 90% of B.C.Hydro’s production on average is from
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hydro-generators, and under most stream flow conditions there is surplus generation available
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that can be exported.
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low, approximately $5/MWh, thus ensuring these facilities can be dispatched under all but the
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most extreme market conditions. The low variable cost of these facilities together with the
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water storage capability, allows B.C.Hydro to choose when to sell surplus electricity on the
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export market. It also allows B.C.Hydro to import electricity during low price periods (light
Testimony of K.G. Peterson
The variable cost of B.C.Hydro’s hydroelectric generation is extremely
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Powerex
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load hours and spring/early summer) to serve load in BC, and save the water in reservoirs for
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later high price periods in the export market.
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B.C.Hydro’s transmission interconnection North to South with the US is rated at 3,150 MW or
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about 30% of its generating capacity. Because B.C.Hydro is in more or less load resource
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balance and therefore B.C.Hydro’s generation is mostly committed to domestic load, the intertie
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limits only rarely constrain trade between BC and the US. Because of this lack of constraints,
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B.C.Hydro has been able to use a US market index (the Mid-Columbia index reported by Dow
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Jones) in its Real-Time Pricing Program for industrial customers. The same or a similar index is
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being considered for a B.C.Hydro virtual access program for industrials, recently announced by
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the BC Government.
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Powerex’s export sales occur in a highly competitive market, where the price is set by
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competition amongst suppliers without regard for average cost of production. Certainly
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B.C.Hydro’s historic (average embedded) cost has no influence or impact on the market price
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Powerex is able to get for export sales. B.C.Hydro’s Fully Allocated Cost of Service Study
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(“FACOS”) has been made publicly available for many years through the BCUC regulatory
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process and to the best of Powerex’s knowledge this disclosure has not harmed Powerex in the
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export markets.
Testimony of K.G. Peterson
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Powerex